There are many people who want to invest in fixed deposits but lots of them are totally unaware about the facts of such deposits. This is a guideline based on some very important points that everyone must keep in mind while opting for company fixed deposits for investments.
- Best interest rates- In the comparison with banks fixed deposits, company deposits offer you best and competitive rates of interest. The reason behind the higher return rates may be its extra risk provision. For example, prior to a couple of months, a fixed DHFL deposit was added has a 9% annual rate of interest whereas, in all banks the maximum rate of interest offered is 7%.
- Additional/extra risk- The banks are protected by RBI, therefore in case of bust they are still liable to pay off your money, however, the fixed deposits are unsecured and are not protected by RBI, therefore, in case of bust you will lose all of your deposited funds. For lowering the risk of company fixed deposits, you have to rely upon the reputation and past performances of paying off dividends. A strong company will be the best option for you.
- Company fix deposits are reviewed by rating agencies- Rating agencies are continuously reviewing company fixed deposits of different companies. In the light of these ratings or reviews you can opt for a better and a beneficial company fixed deposit scheme. For example, Fitch has rated The Shriram Transport Finance FD scheme as tAA (a grade of investment). You have to make a consistent check over these ratings and only opt for the one having higher rates. A misconception is circulating about the ratings of fixed deposits by RBI, RBI never rates of any company fixed deposits and is not responsible to pay off your money if the company default on.
- Company fixed deposits are risky and unsecured- As the company deposits are not backed by RBI, therefore in case of default, you cannot get back your money or in other words your deposits documentation will become useless. This makes them higher risky and unsecured.
- Company fix deposits TDS- Company fixed deposits in not offering you any sort of TDS if you find you find your interest rate lower than Rs. 5,000 per annum. On the other hand, when you find your interest on deposits greater than Rs.5, 000 per annum, you can opt for investing in multiple fixed deposit schemes.
- Flexibility in investment time horizon- A long run investment in company fix deposits is able to give you a higher rate of interest along with additional risk. Therefore, if you don’t feel comfortable with long run investments, you can opt for a short run time horizon for example, a time period of a single year.
Similar to other investment options, your decision is totally relying upon your circumstances. In any sort of investments, whether in company fixed deposits or a bank fixed deposits, make sure your safety and risk tolerance.
Company fixed deposits are very good options if considered for a short run with a good reputed and stable company. However, as these funds are unsecured so avoid investing too much money in these schemes.